Overseas takeover deals designed to lower corporate taxes took a double-punch on Tuesday, with Walgreen Co. moving ahead with a foreign merger without the tactic and the U.S. Treasury Department saying it was looking for ways to deter the strategy.

Walgreen, the Deerfield, Ill., drugstore chain, has been under pressure from shareholders to reincorporate overseas to lower its tax bill as part of a potential deal with European drugstore...